Cephalon To Pay $1.2 Billion To End Government’s Pay-For-Delay Suit

Cephalon Inc. has agreed to pay $1.2 billion to settle a long-running antitrust suit. The company had been accused by the Federal Trade Commission of paying generic-drug makers to hold off on launching their own version of narcolepsy treatment Provigil. This is a major victory for the FTC in its campaign against so-called pay-for-delay patent settlements. Teva Pharmaceutical Industries Ltd., which now owns Cephalon, is being allowed by the FTC to count its settlement with private plaintiffs in related litigation toward that total disgorgement amount. Cephalon agreed in April to pay direct purchasers $512 million to exit that suit. Whatever is left over after Teva pays the private plaintiffs will go to the federal treasury.

Teva, which has become the world’s largest generic-drug maker after a series of acquisitions, has also agreed not to use the kind of patent settlements at issue in the suit in the future in its U.S. operations as part of the FTC deal. It was stated in a FTC news release:

Today’s landmark settlement is an important step in the FTC’s ongoing effort to protect consumers from anti-competitive pay-for-delay settlements, which burden patients, American businesses and taxpayers with billions of dollars in higher prescription drug costs. Requiring wrongdoers to give up their ill-gotten gains is an important deterrent.

The settlement came just before the seven-year-old case was due to go to trial in Philadelphia federal court and almost exactly two years after the FTC won a landmark decision from the U.S. Supreme Court holding that Hatch-Waxman Act settlements could face antitrust challenges.

The antitrust litigation stems from a series of reverse payment settlements worth about $300 million that Cephalon reached with four generic-drug makers in 2005 and 2006 to resolve patent infringement litigation over the blockbuster narcolepsy treatment. The generics companies all sought approval to market their own versions of the drug on the same day, meaning that all four were eligible for the initial 180-day exclusivity window granted to first filers under the Hatch-Waxman Act.

In addition to requiring $1.2 billion in disgorgement, Teva agreed to an injunction that keeps it from using some kinds of reverse payment settlements in the future. The injunction mainly covers business deals that compensate the generic-drug maker entered at the same time as the patent settlement. Teva will not be permitted to sign a business deal with a rival either within 30 days of a patent settlement that limits generic entry or that is conditioned on that kind of settlement.